A Brief Guide on Fraud Prevention, Stolen Credit Cards, and Protecting your Business
While the rise and rise of e-commerce has unlocked previously closed doors to savvy retailers both domestically and abroad, it has also opened the door to a new form of evil, Online Fraud. Online payment fraud isn’t a new thing, but its growing year on year (every year since 1993 in fact), and even as security measures improve, so too do the methods used by fraudsters.
Transactions made with stolen cards totaled $417m in 2016, which is more than double the figure from 2011. Sadly, nobody is immune to this, and below is our guide on how best protect yourself and your business from this ever growing threat.
Major Types of Fraud
Fraud exists in many forms, and over time has become more and more sophisticated. Here we look at the two most prevalent forms in the online space.
This is the most simplistic method of online fraud. All the fraudster needs are card details, rather than the physical card itself. As the very vast majority online portals don’t cross check delivery addresses against card details, the chances of identifying identity fraud at the point of sale is virtually zero.
The fastest rising method of fraud is referred to as 'friendly fraud'. At the point of sale, this type of transaction appears completely innocuous. After the goods have arrived, the customer initiates a chargeback, and keeps the goods they received. In many cases, friendly fraudsters will use middlemen as well whose details are used on the order, and then forward the products received. This can be prevented in many cases by using a signature only delivery service. The main point of difference between friendly fraud and other forms of fraud, is that it doesn’t involve the use of a stolen card. In many cases the fraudster will use their own card, before later claiming the card was in fact stolen.
How Do We Identify Fraud & How Can You?
House of Home use a number of methods to minimise the risk of fraud, and over time, have established a few safeguards and checks to cut it off at the source.
Here are the most important:
- Contact customers to “confirm details” whenever an order excess a certain amount - for us, this is $200
- Does this product have instant resale value? Is it a big brand? If so, it’s easily sold on using other websites. Be especially vigilant when the purchase is several of the same item.
- Is the delivery address valid? Or is it abandoned? A P.O. Box address is the biggest red flag here. If in doubt, google maps will help you establish the type of location.
- Does the email address match the name? Most of us have a personal or work email which goes some way towards identifying the holder.
- Where was the product purchased? A foreign IP address should raise serious suspicions
A chargeback is the term used by banks for debiting a merchant’s bank account due to successful return of transaction by the Issuing bank under the Card Scheme Rules. For retailers, this is the most unfortunate part of the process. The sale has been made, they money is in the bank, and the product is gone. Next minute, the money is gone. This is why being vigilant is so important. Due to the immense difficulty in catching cyber criminals, and even initiating action from law enforcement, if it reaches this stage, it’s unlikely you will see your money again. The money from the transaction has been returned to the card owner, the perpetrator has received their goods, and the retailer is out of pocket.
Its important to remember, the transaction is between You and The Customer. While House of Home will endeavour to prevent fraudulent transactions, and vets any suspicious looking orders, the decision to ship the goods sits with you. In the event of fraud, its the retailer, not House of Home will incur the cost of the chargeback, so its worth setting up strong internal processes to check transactions.
A Few Final Tips
As a final recap, here are our top 5 tips in preventing this happening to you:
- Contact ALL customers who’s purchases exceed a certain monetary value.
- Don’t send any orders without a verbal confirmation with them.
- Don’t send any orders to a PO Box, and where possible, use a signature service
- Keep an eye out for international numbers, IP addresses, and unusual email addresses
- If the address looks suspicious, check Google Maps
Fraudsters will often target specific types of goods as well. The purchases are not usually for their own personal use, but rather to on-sell. The biggest targets will be brand name products, and easy to ship products. Particularly vulnerable are things like appliances, electronics, and clothing (mainly shoes). These types of products generally retain their value in an on-selling situation provided they are boxed and in their original condition.
As we enter the busiest months of the calendar, remember to be vigilant, and as always, Happy Selling!